Corruption risk fears over opaque third-party ownership

Compliance professionals are increasingly worried about the anti-bribery and corruption (ABC) risk opaque third-party ownership structures pose to their companies.

An annual survey of compliance professionals found more than half said they were concerned or very concerned about the beneficial ownership risk posed by third parties.

This was the finding of the eighth Anti-Bribery and Corruption Benchmarking Report, an annual report produced by Kroll and the Ethisphere Institute. Of the survey’s 448 respondents, 93% said they expected their overall ABC risk to remain the same or worsen in 2018.

Opaque or suspect corporate structures was the third most common reason a third party would fail to meet compliance standards, up from fifth place in 2017 and the most notable year-on-year change, the survey said.

The survey found less than a quarter of respondents felt confident their organisations had the ability to address the risks around ownership structures. Steven Bock, global head of operations for compliance at Kroll, said: “Compliance professionals have good reason to renew their focus on the ownership structure of third-party companies with which they permit their company to associate.

“It’s about both reputational and regulatory risk – if you don’t know the true owner of a company you’re working with, you cannot effectively assess those risks, and corporate structures do not always lend themselves to an easy analysis of that question.”

The survey also found third-party violation of ABC laws topped the list for perceived risk for the second consecutive year.

More than half (58%) of respondents said they uncovered legal, ethical or compliance issues with third parties after having done due diligence. However, while most of these were discovered through ongoing monitoring, there was in increase in the number of third parties self-declaring breaches – a reflection of regulatory changes that including increased personal liability.

Data security was another risk flagged by the survey, with more than three quarters (76%) of respondents saying they are concerned with data security risk related to third parties.

The report also warned respondents were not conducting appropriate levels of due diligence before going through with mergers and acquisitions.